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093032 1 (1971-02-18)

handle is hein.gao/gaobacwxi0001 and id is 1 raw text is: OB)3 03 L UNITED STATES GENERAL ACCOUNTING OFFICE WASHINGTON, D.C. 20548 CIVIL DIVISION 1971 Dear Mr. Kleppe: The General Accounting Office examined into the Small Business Administration's (SBA) evaluation and review of applicants' eligi- bility for business loans requested by firms whose owners have a large amount of personal resources and a high not worth. Our survey was conducted at the Washington, D.C., headquarters office of SBA, and the Boston and Denver Regional Offices. Under section 7(a) of the Small Business Act (15 U.S.C. 636), SBA cannot extend financial assistance to a small business concern unless the assistance is not othervise available on reasonable terms. SBA's National Directive 510-1A specifies that financial assistance will not be granted if the requested funds are obtainable$ without undue hardship, through utilization of the personal credit or resources of the owners, partners, management or principal stockholders of the applicant. The directive further provides that to prevent the violation of the statutory restriction against making loans when personal resources or credit are otherwise available, the applicant must provid, for SBA's evaluation, adequate documentation of undue hardship. NEED TO ESTABLISH ADEQUATE CRITERIA FOR EVALUATING THE ELIGIBILITY OF LOAN APPLICANTS WHOSE PRINCIPALS HAVE DOC SUBSTANTIAL RESOURCES OR CREDIT Our survey revealed that SBA is providing or guaranteeing part of the financing for amounts greater than necessary because loan specialists were not adequately considering the personal resources or credit of the owners, partners, management or principal stockholders of the applicants in their analyses of loan applications. We believe criteria should be established which would specify to loan specialists when a loan should be disapproved or SBA participation reduced because the personal re- sources or credit of the principals are substantial enough to be used without undue hardship of the principals. We reviewed section 7(a) business loans made by the Boston and Denver Regional Offices to applicants whose principals had an outside net worth of $50,000 or more. We made our selection from the 132 loans approved by the Boston Regional Office between July 1, 1969, and January 31, 1970, and from the 137 loans approved by the Denver Regional §~2~ 0932=32

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